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Credit Cards aren’t just for Christmas!

At this time of year I suspect that most of us are doing the same thing - filling up our credit cards to the limit to pay for Christmas.16-04-2009

Every year we’re expected to break all the credit card spending records. We rarely disappoint - last year we spent on average £600 on our cards and this year is set to be no exception. There are around 55 million cards in circulation and we already owe £45 billion on them - an average of £1,000 per adult. But with interest rates so low temptation has never been greater. Spare a thought now for those post Christmas bills and it’s not too late to avoid getting so far into the red that you spend the rest of the year getting back in the black. What interest rate does your card charge? If you aren’t going to be in the position to pay off your bill all at once switch to one with the lowest possible interest. The most competitively priced cards charge between 9.9 and 14.9 percent. If you are still with the card issuer you’ve been with for years you could be paying much more than that. With Barclaycard for instance customers are paying anything from 9.9 to 24.9 percent depending on their credit rating. Many cards offer 0% interest for a limited period - usually 6 months. You can move your existing debt balance to the new card and pay no interest on it for that introductory period. But beware. With some cards new purchases also qualify for the 0% rate and cashback deals but with others they don’t. And check the rates you’ll be paying once the 0% period is up. Some cards charge fairly high, uncompetitive rates after that time. You could run up larger than normal bills because you aren’t being charged interest, end up carrying big balances forward beyond the interest free period and find yourself having to pay 18 or 19%. Note in your diary when the 0% ends and be prepared to move cards again if necessary. Most cards charge their normal interest rates for cash withdrawals during their special offer periods.If you can’t be bothered to keep switching cards to take advantage of 0% offers look for a one that suits you and give you the lowest standard rate on both your existing debts and new purchases. The more often we switch to take advantage of lower rates the more difficult it is for the card companies to keep our business and make a profit out of us. So some of them are thinking longer term. 9 million people have Barclaycard but many of those customers have other cards as well and use the cheaper ones to shop with. So the company is now trying to persuade it’s customers to ditch the others by offering to match the interest rate charged by the cheapest of them (that’s the standard rate not a cheaper introductory rate). You can gather all your card debts under Barclaycard’s wing and you’ll pay the lower rate on everything you owe. The Co-op is also thinking longer term with a card rate that is guaranteed to stay 5 percent above the bank of England base rate. Whatever the offer and whatever bells and whistles there are in the way of perks make sure you can’t find a better deal elsewhere.If you do pay off your card bills in total on the due date interest doesn’t matter so look for other perks. Give those a miss that charge an annual fee and go for ones that give you up to 56 days interest free before you have to pay the bill. Some offer you cashback - the best offer one per cent but with others it’s one percent for a fixed period or if you spend over a certain amount. Read the small print. We all like to think we’re doing our bit for others at this time of year and affinity cards are on way of doing that. Every time you use one a donation goes to charity. But they often charge high rates so you could be better off with a lower rate card and making your own donation direct. The stores are pushing their own cards now too. They’re convenient but rates are often much higher than on credit cards so even with a discount on you purchases they are usually not a good option. Think twice. The ideal would be to cut up the plastic and use cash instead. But for most people that’s just not practical. There are 1,500 cards on offer for 60 providers so there’s plenty of choice. But as soon as your existing card company gets wind of the fact that you’re not flexing their plastic any more they’re likely to increase your credit limit to tempt you back. Don’t bite. Interest rates are at their lowest for 40 years and we’re used to being in debt but sooner or later rates will start to rise so resist the temptation to run up so much debt that even small rises could tip you carefully planned budget crashing over the edge. Unfortunately credit isn’t just for Christmas!